What is the Full Form of SLR?

The full form of SLR is Statutory Liquidity Ratio. The Indian government uses the word “SLR” to describe the rule requiring commercial banks to obtain authorization for security in the form of cash, gold reserves, or RBI (Reserve Bank of India) prior to issuing credit to clients. In essence, it is the minimum amount of reserves that banks must maintain before issuing credit to clients. The minimal quantity of deposits retained by each Indian commercial bank is what is really meant by SLR.

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Components of SLR

Liquid Assets: Liquid assets include things like gold, bonds from the government, and duly authorized security deposits. These assets can be converted into cash in one to two days.

NDTL: Full form of NDTL is Net Demand and Time Liabilities. These are deposits from banks that banks or other financial organizations accept. Banks are obligated to pay these organizations upon demand. Demand drafts, past-due fixed deposits, saving deposits, and time deposits with various maturities are all included in the NTDL. Time deposit depositors are unable to withdraw their money until the time deposit reaches maturity. The bank imposes fines on the deposit holders for early withdrawals if such deposits are liquidated. 

SLR Limit: SLR has a practical limit. SLR has a 40% upper limit and a 23% lower limit.

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Objective of SLR

STOP COMMERCIAL BANKS FROM BEING OVER-LIQUIDATED: SLR’s main goal is to halt over-liquidation. It may cause the Cash Reserve Ratio to rise, pushing the commercial bank closer to a financial disaster. Therefore, the SLR is used to control bank credit. 

REGULATION OF BANK CREDIT As the SLR increases during inflation, the flow of bank credit declines. Similarly, the Reserve Bank of India ensures that bank credit rises during recessions by lowering the SLR. 

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